2024 (6) TMI 190 - AT - Service Tax

Appeal Wins: Tribunal Rejects Service Tax Demand; Confirms Exemption for Road Construction Services, No Penalty Imposed.

Shri Sujit Gogoi Versus Commissioner of CGST & Excise, Guwahati

The Tribunal set aside the impugned order, allowing the appeal and granting consequential relief to the appellant. It held that the demand for service tax ... Demand of service tax confirmed by invoking extended period of limitation - Penalty - HELD THAT:- As per the Audit report, the appellant has paid the service tax as demanded. In that circumstances, the demand for the period up to March, 2016, is not sustainable against the appellant. Further, as per the impugned order, the demand has been raised up to June, 2017, which is not included in the year 2016-2017. The said demand has been raised on the basis of Form 26AS. In this regard, the Works Contracts is perused - As per the Works Order, it is clear that the appellant was engaged in the activity of construction of road, which is exempted from payment of service tax. Penalty - HELD THAT:- The demand of service tax is not sustainable against the appellant. As the demand is not sustainable, consequently, penalty is also not imposable on the appellant. The impugned order is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a demand for service tax raised by invoking the extended period of limitation based on Form 26AS information is sustainable where the assessee had undergone an earlier audit for the relevant period and paid the audit-assessed tax. 2. Whether the activity of construction of roads under the contractor's Works Order constitutes a taxable service or falls within the Negative List/exemption such that no service tax is payable for the periods in question. 3. Whether penalty can be sustained where the substantive demand for service tax is held to be not sustainable. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of extended period demand founded on Form 26AS where earlier audit covered the period and tax was paid Legal framework: Extended period of limitation for raising service tax demands is triggered only on specific circumstances provided by law; assessment/demand must be founded on admissible and relevant evidence. Audit reports and compliance arising therefrom are material to determine tax liability for audited periods. Precedent Treatment: No judicial precedent was invoked or applied by the Tribunal in the impugned decision; therefore, precedent was not followed, distinguished or overruled in the present reasoning. Interpretation and reasoning: The Tribunal found on record that an audit for April 2011-March 2016 was conducted and the audit report prescribed a demand of Rs.2,77,928/-, which was paid by the assessee. Given that the audit covered the period up to March 2016 and the audit-determined liability was discharged, a subsequent show-cause notice invoking extended limitation founded on Form 26AS for that same audited period is unsustainable. The Tribunal treated the audit report and payment as dispositive for periods encompassed by the audit, rendering reliance solely on third-party Form 26AS insufficient to extend liability for the audited months. Ratio vs. Obiter: Ratio - where an audit has been conducted for a specific period and the assessee has paid the demand arising from that audit, a subsequent demand for the same period based merely on Form 26AS is not sustainable. Obiter - observations on the evidentiary weight of Form 26AS beyond the audited period. Conclusion: Demand up to March 2016 (period covered by the audit) is not sustainable; extended-period demand for those months cannot be sustained on the basis of Form 26AS alone. Issue 2: Taxability of road construction works - whether falls within Negative List/exemption Legal framework: Service tax liability depends on whether the activity falls within taxable services or is excluded under the Negative List/exemptions; classification turns on the nature of the contracted activity as shown in contract/works order. Precedent Treatment: No precedential authorities were cited or applied to resolve the classification question; the Tribunal resolved the issue on the contractual record and statutory classification. Interpretation and reasoning: The Tribunal examined the Works Order/contract extracted in the record and concluded that the appellant was engaged in construction of road works. The Tribunal held that construction of roads, as per the contract description, is covered under the Negative List/exemption from service tax (i.e., not a taxable service). The extended demand raised up to June 2017 was premised on Form 26AS and did not comport with the contractual characterisation showing exempt activity. Because the underlying activity was not a taxable service, demands raised for periods after the audit (up to June 2017) based on Form 26AS were also unsustainable. Ratio vs. Obiter: Ratio - where the contractual documents establish that the activity is construction of roads and so falls within the Negative List/exemption, demands for service tax are not sustainable; characterization of the activity by contract governs taxability. Obiter - none beyond the direct application of the contract to tax classification. Conclusion: The activity of road construction under the Works Order is exempt/covered by the Negative List; consequently, service tax demands for the post-audit months (up to June 2017) founded on Form 26AS are unsustainable. Issue 3: Liability to penalty where substantive demand is not sustainable Legal framework: Imposition of penalty attendant upon tax demands depends on the validity of the substantive demand; penalty cannot ordinarily sustain where the primary tax liability is held to be non-est. Precedent Treatment: The Tribunal did not refer to any specific authority on penalty; it applied the principle that penalty follows the fate of the substantive demand. Interpretation and reasoning: Because the Tribunal set aside the substantive demands (both for the audited period up to March 2016 and the later months up to June 2017), there remained no basis for imposition of penalty. The Tribunal therefore held that penalty could not be imposed once the underlying demand was held unsustainable. Ratio vs. Obiter: Ratio - penalty is not imposable where the substantive tax demand is not sustainable. Obiter - none beyond this direct application. Conclusion: Penalty imposed in the impugned order is not sustainable and is set aside along with the substantive demand. Cross-references and Interconnection of Issues The Tribunal's determinations on Issues 1 and 2 are interlinked: the audit coverage and payment disposed of liabilities up to March 2016 (Issue 1), and the contractual characterisation of the activity as road construction (Issue 2) established non-taxability for the remaining period up to June 2017; both findings together negate the basis for extended-period demand founded on Form 26AS. Issue 3 follows as a consequential legal consequence of Issues 1 and 2. Final Disposition The Tribunal set aside the impugned order, allowed the appeal, and granted consequential relief on the grounds that (a) the audit-covered period liabilities were discharged and cannot be reopened on the basis of Form 26AS alone, (b) the works constituted road construction falling within the Negative List/exemption and thus were not taxable, and (c) penalty cannot survive where the substantive demand is unsustainable.